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Treasuries Extend Rally On Weaker Than Expected Service Sector Data

Extending the strong upward move seen over the two previous sessions, treasuries showed another notable move to the upside during trading on Thursday.

Bond prices gave back some ground after spiking in mid-morning trading but remained firmly positive. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 6 basis points to 1.536 percent.

Treasuries jumped following the release of a report from the Institute for Supply Management showing U.S. service growth slowed by more than expected in the month of September.

The ISM said its non-manufacturing index dropped to 52.6 in September after climbing to 56.4 in August. While a reading above 50 still indicates service sector growth, the index has been expected to show a more modest dip to 55.0.

With the much bigger than expected decrease, the non-manufacturing slumped to its lowest level since hitting 51.8 in August of 2016.

"The respondents are mostly concerned about tariffs, labor resources and the direction of the economy," said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee.

On the heels of disappointing manufacturing and private sector jobs data released earlier this week, the report has led to renewed concerns about the economic outlook and inspired confidence the Federal Reserve will continue to cut interest rates.

"The latest developments should add a sense of urgency to talks seeking a resolution to the US-China trade dispute and will keep the pressure on the Fed to ease monetary policy further," said ING Chief International Economist James Knightley.

He added, "We continue to look for a December rate cut and a further move in 1Q20, but the risks are increasingly skewed towards more aggressive action."

On Friday, trading is likely to be driven by reaction to the Labor Department's closely watched monthly employment report.

Employment is expected to increase by 145,000 jobs in September after rising by 130,000 jobs in August, while the unemployment rate is expected to hold at 3.7 percent.

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